What is the net cooling effect

Gross & net: the difference simply explained

Anyone who starts their professional life for the first time and is studying the accounting of their wages or salaries will notice that both a gross and a net amount are shown there. But what does that actually mean?

What does gross mean?

The term “gross” originally comes from Latin: “brutus” means something like “cumbersome”, “dull” or “impure”. Nowadays it is mostly used in the sense of "total".

The gross salary is what the employer pays and what is stipulated in the employment contract - the "total".

What does net mean?

“Netto” comes from Latin or Italian and means “pure”. The net value is the “pure part” of the total (“gross”). In terms of wages or salaries, this means that taxes, social security and other charges are deducted from the gross (total). What is left over at the end is “the pure net” - that which ends up in the account.

Difference between gross and net

“Gross” means a value that is made up of several parts. If you subtract certain proportions, you get the pure or actual size: the net value. Gross is therefore always greater than net.

In the case of salaries, the employee shares for the following taxes and contributions are deducted from the gross:

  • income tax
  • Health insurance
  • Pension insurance
  • unemployment insurance
  • care insurance
  • Accident insurance
  • possibly church tax

Because taxes and duties always depend on gross income and on factors such as the tax bracket, net salaries are very different. For example, if you earn 3,000 euros gross per month and are in tax class 1, you end up with around 1970 euros. Anyone who earns 3,000 euros gross, is in tax class 3 and uses the child allowance for a child, receives just under 2,260 euros net.

Based on the average salary in Germany, you have to deduct around 1500 euros from the gross salary in order to calculate the net salary.

Where else can I get gross and net?

A distinction is made between gross and net not only in terms of wages and salaries. When transporting goods, for example, a distinction is made between the net weight of the goods and the gross weight, if a goods carrier (packaging, pallet, container, etc.) is added.

Also read: How Much Money Should You Save a Month?

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